Sorry folks another volume of War and Peace - a couple of forum members have requested I forward this to them so I thought I might as well post it. It is a letter we send out to all clients soon after application completion. It would appear that my comments about NIE's at the end are out of date and unfair to the Spanish Consulate offices in London and Manchester judging by other members remarks but I have left it in there anyway. For some of you who have already completed some of my comments will strike a chord I have no doubt.
We would never wish to put the fear of God into any of our clients about completing on a Spanish property purchase. Nevertheless we believe it is important that you are prepared to expect a completely different experience to any other property purchase you have ever made before. We will do everything in our power to ensure a smooth transaction, but many things can happen in Spain that sometimes seem beyond belief. The vast majority of completions are concluded without a hitch, but as they say forewarned is forearmed or at least prepared.
We always recommend that our clients allow at least one day either side of the proposed completion date before travelling to Spain. Certainly please don’t plan to travel to or from Spain on the completion date itself. Ideally you will allow three days at least between the travel dates.
Completion itself is under power of Roman law. What that means is that all parties and their lawyers involved in the transaction are present at the office of the Notary public where an official exchange of funds and Title Deeds takes place. There can be as many as 10 or 15 people in the room with a lot of comings and goings. No luxury of Telegraphic Transfer of funds and Title Deeds exchanged over the telephone! Until very recently (and still in some rural areas) the vendor expected to receive a cash payment in exchange for the property, as the Spanish were very mistrusting of the banking system. Nowadays, in the more developed areas, funds change hands by way of Banker’s Drafts drawn on the client’s account, in order to pay for the property and all of the relevant taxes and Notary and bank charges. You are required to sign the cheques in person, as you are the person authorising payment. Your lawyer will account for everything and also the Notary will confirm the legality of the transaction.
It should be noted that systems in Spain are not as sophisticated as in the UK and more human involvement means more mistakes can arise. A mortgage deed can have incorrect terms, a vendor can turn up without keys to the property, an existing mortgage lender can refuse to discharge the current mortgage and we have even known of a bank failing to turn up with the necessary cheques to conclude the transaction (thankfully only once in our experience). Additionally, there can be issues with the property Title deed. A client of ours was due to complete and someone at The Land Registry had recorded a mortgage on a property by mistake. It was resolved but it did take time and thankfully the client was in a position to go back to the Notary the next day as this was not until 2.45 – Notary offices normally close at 2pm. If there are mistakes, these take time to resolve and it can all seem very traumatic in a strange environment where most people are talking a foreign language. The Spanish have a tendency to take these hiccoughs in their stride and accept it as a normal part of daily life. They are very philosophical by nature and give the appearance that they want to spend more time discussing the problem, rather than resolving it, on the basis that it will be resolved in due course anyway. You will often hear raised voices, with everybody speaking at once in a tongue you do not understand. This is in fact their way of resolving any issues, but it can be unnerving for you. Don’t forget that one of the very reasons you are buying a home here is because of the Spanish attitude to life. None of these situations even account for the fact that everybody going to the Notary will be dependent on clear roads without any delays – a strange thing in Spain indeed!
Your lawyer should confirm with the vendor’s lawyer, before the day of completion that all debts related to the property have been discharged or will be confirmed discharged at completion. Mortgages, property taxes, utility bills, community fees all relate to the property not the specific owner. There are other debts that can be secured on the property and your lawyer should check to make sure that these also are not passed to you with the exchange of Title. At the Notary, your lawyer will confirm with The Land Registry on the day of completion that no new debts have been levied on the property since the original searches were conducted. If any debts are outstanding and are not paid up to date, your lawyer should retain sufficient funds, to ensure that they are paid with no balances outstanding. If your property purchase is a resale from a non resident, the lawyer should also ensure that any capital gains liability is discharged to the tax office and as such, in conjunction with the bank a percentage will be retained (currently 5% of declared sale price) of the total purchase funds, to ensure any tax is settled. In order to clarify this point it might appear that you the purchaser are paying the 5% retention, which is in fact true but the same amount is retained from the net proceeds to the vendor. To illustrate, if the purchase price was 300,000€ there would be a debit of 15,000€ and effectively the vendor only receives 285,000€ (less any outstanding mortgage, Notary charges etc.). This system ensures the Tax Office receives some or all, of what is due to them from any capital gain. If you are buying from a Spanish resident there is a different system in place.
I am sure that it all sounds very traumatic and daunting and as mentioned at the outset there is no intention to instil fear. It is merely to bring to your attention to try and be as relaxed as possible and wear comfortable clothes. In our experience most problems can be resolved with a little patience and time. The Notary offices can sometimes be cramped, stuffy places and while most of them are located in proximity to a café or bar (where isn’t in Spain) it can be a good idea to have a bottle of water.
As I have already stated, humans are fallible and it is not always the banks or the officials. One very silly, but vital thing to remember, is please take both your passport and your NIE certificate with you to the Notary for completion – it won’t happen without them! And yes, that is something that I have known to happen!!! While we are on the subject of NIE’s, certain lenders will not permit completion without the official certificate while others will permit completion with the NIE receipt. The Spanish Embassy allegedly operates a service for processing NIE applications in your country of origin – we have yet to find a client who has encountered a favourable experience applying this way. So far the record appears to be 15 months, but the NIE certificate was never issued. The client has incurred financial penalties from the tax office and ultimately applied again in Spain on another visit. Our recommendation would be either to apply in person in Spain or your lawyer can apply by Power of Attorney.
Of course if you have given your lawyer a blanket Power of Attorney to complete on your behalf, you won’t experience any of this – that doesn’t mean to say it won’t be happening, but you will be experiencing stress anyway waiting to hear that completion has been successful. So don’t take my word for it, come along and enjoy the fun!